When you are in debt or have a bad credit score, you really need someone to be upfront and honest with you about what your options are and how you can get back to where you used to be. You will find a lot of websites and advisers out there who aren’t necessarily giving you the best advice and the advice you need to rely on if you are to get out of debt. The honest truth is if you go to a financial adviser and you ask ‘how will debt settlement affect your credit’, the answer you should receive is that it will have a negative impact.
While it may not be the debt settlement itself that affects your credit negatively, but what has happened prior to the negotiated settlement that really will negatively affect your credit. If you already have a bad credit score, then negotiating a settlement with your creditors can only help your cause. In fact, your debt settlement agreement will reflect a zero balance on your credit report once it is reached with your creditor and this could increase your score after each month that you have a zero balance.
However, if you are in a situation where your credit is fine, but you are having a lot of difficulty making your monthly payments, then debt settlement will likely affect your credit score negatively. Why does this happen? Simply put, creditors will not look to settle a high amount of debt if your current accounts are being paid and as a result, this will obviously dampen your credit score. However, when the account in question is not being paid and considered ‘delinquent’, then the creditors will start to consider settling.
For many people, debt settlement is one of the only options available to them in their current situation and when it gets to that point, debt settlement can only be a good thing and will in the long run, help your credit score. However, when your debt situation gets this bad, I’m afraid to say that your credit score will already be suffering.
The fact of the matter is, your credit score will recover, but it is important to understand how the means to get you there may impact your overall score in the meantime. Everyone in debt wants to get back to where they once were – living a normal, debt free life without having to worry about whether you can qualify for a mortgage or car payments. With hard work and an understanding of the system, anyone can use debt settlement to their advantage to improve their credit score and have a healthier financial life.